Court rules building construction not manufacturing for tax benefits under Finance Acts.

The court ruled against the assessee, a private limited company engaged in building construction, determining that its activities did not qualify as manufacturing or processing goods under the Finance Acts of 1971 and 1972. As the company's income did not meet the requirement of deriving at least 51% from manufacturing processes, it was not considered an "industrial company" eligible for concessional tax rates. The court sided with the Department, leaving each party to bear their own costs due to the complexity of the issue.

---

---

Issues Involved:
1. Determination of whether the assessee is an "industrial company" u/s 2(6)(c) of the Finance Acts of 1971 and 1972.
2. Applicability of concessional income-tax rates for the assessment years 1971-72 and 1972-73.

Summary:

Issue 1: Determination of whether the assessee is an "industrial company" u/s 2(6)(c) of the Finance Acts of 1971 and 1972
The primary issue is whether the assessee, a private limited company engaged in the construction of buildings, qualifies as an "industrial company" entitled to concessional tax rates. The assessee argued that various manufacturing processes involved in construction, such as moulding R.C.C. slabs and fabricating steel doors and windows, should classify it as an "industrial company." The Tribunal supported this view, stating that the construction of buildings involves manufacturing processes and machinery use, thus qualifying the assessee for the concessional tax rate of 55%.

Issue 2: Applicability of concessional income-tax rates for the assessment years 1971-72 and 1972-73
The court examined the definition of "industrial company" in the Finance Acts of 1971 and 1972, which includes companies engaged in the manufacture or processing of goods. The court noted that the end product of the assessee's business is a building, not goods. The Explanation to the definition requires that at least 51% of the company's income must come from manufacturing or processing goods. The court found that the mere fact that the company makes R.C.C. slabs or steel doors and windows is insufficient; 51% of its total income must derive from these manufacturing processes.

Case Law Analysis:
- CIT v. Tata Locomotive & Engineering Co. Ltd. [1968] 68 ITR 325 (Bom): Assembling motor vehicles was deemed manufacturing, but this case was not directly applicable.
- CIT v. Pressure Piling Co. (India) Ltd. [1980] 126 ITR 333 (Bom): The company was engaged in manufacturing processes for laying foundations, but the definition under section 84 (now section 80J) differed.
- CIT v. N. U. C. Private Ltd. [1980] 126 ITR 377 (Bom): The court held that making doors and window frames was part of building construction, not independent manufacturing.
- CIT v. Lakhtar Cotton Press Co. (Pvt.) Ltd. [1983] 142 ITR 503 (Guj): Ginning and pressing of cotton were considered manufacturing.
- CIT v. Shah Construction Co. Ltd. [1983] 142 ITR 696 (Bom): The court held that construction activities were ancillary to the main business of construction, not manufacturing.
- National Projects Construction Corporation Ltd. v. CWT [1969] 74 ITR 465 (Delhi): The court found that manufacturing for self-use could qualify as an industrial activity, but this was under a different statutory provision.

Conclusion:
The court concluded that the assessee's activities in constructing buildings do not qualify as manufacturing or processing goods. The definition of "industrial company" requires that 51% of the income must come from manufacturing or processing goods, which was not the case here. The court answered the question in the negative, ruling in favor of the Department and against the assessee, and left the parties to bear their own costs due to the complexity of the question.

---